National Savings Certificate (NSC), Public Provident Fund (PPF) and Kisan Vikas Patra(KVP) are the most popular fixed income earning instruments which can be opened with a Post Office and also help in saving tax under Section 80C. In this article, we would be focusing on National Savings Certificate (NSC), its Interest Rate, Maturity Period etc.

National Savings Certificate Scheme

National Savings Certificate Scheme is a scheme launched by the govt to promote the habit of savings amongst the common man and to channelize these savings in the right direction for the benefit of the whole country. Under this scheme, deposits are accepted by the govt through Post Offices and the amount generated through these deposits is used for the growth of the country.

To encourage the taxpayer to invest in this scheme, the govt has allowed this Investment in National Savings Certificate (NSC) to be claimed as a tax deduction under Section 80C which helps the tax payer in reducing his tax burden.

National Savings Certificate Interest Rate

The Interest Rate on National Savings Certificate is almost at par with the Interest Rates on other Fixed Income earning Instruments like PPF, Tax Saving Fixed Deposit etc. The Interest Rate on NSC is compounded half yearly and is announced by the Govt every year before 1st April and they keep on changing every year.

There are 2 issues of National Savings Certificate (NSC) currently in operation and the Interest Rate on these National Savings Certificate is as follows:-

Particulars

NSC (VIII Issue)

NSC (IX Issue)

Maturity Period*

5 year

10 year

NSC Interest Rate (wef 1st April 2013)

8.5%

8.8%

*Earlier the smaller duration issues were of 6 years but from 1st December 2011, this has been reduced to 5 years.

Interest on National Savings Certificate (NSC) is liable to tax as per the Income Tax Slabs of the Individual. However, no TDS is deducted on such interest but such interest shall be reflected in the Income Tax Return of the Individual.

Although this Interest on National Savings Certificate is taxable, this Interest is not paid to the account holder but is reinvested in NSC. As this Interest is re-invested in National Savings Certificate which is a specified instrument u/s 80C, a taxpayer can claim this amount of interest as a tax deduction under Section 80C.

So, the taxpayer will first have to show this interest earned as an income and then claim this as a deduction under Section 80C. The total maximum deduction that can be claimed u/s 80C is Rs. 1,50,000 only.

Minimum and Maximum Amount to be Invested in NSC

The Minimum Amount to be invested in National Savings Certificate is Rs. 100 and there is no maximum limit on the amount to be invested in the NSC. A person can invest any amount in National Savings Certificate. However, tax deduction u/s 80C can only be claimed for a maximum of Rs. 1,50,000.

The National Savings Certificate is issued in denominations of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000, Rs. 10,000. A person can purchase any no. of certificates of any denomination.

NRI’s are not eligible to purchase National Savings Certificate (NSC). However, if a person was a Resident Indian at the time of purchasing the NSC and become a NRI during the maturity period, he shall be allowed to claim benefits of this scheme.

HUF’s and Trusts are also not eligible to invest in this savings scheme.

Type of NSC Certificates

There are 3 types of National Savings Certificate, namely

Single holder Type Certificate: This type of NSC is issued to the holder himself or on behalf of the minor.

Joint A type Certificate: This type of NSC is issued jointly to 2 adults payable to both the holders jointly.

Joint B type Certificate: This type of NSC is issued jointly to 2 adults payable to either of the holders.

These National Saving Certificates (NSC) are only redeemable on maturity of the specified term. At the time of maturity, the holder of the certificate shall submit the certificate to the Post Office. On receipt of the maturity amount, the holder shall sign on the back of the certificate that he has received the payment and surrender the certificate to the Post Master.

By surrendering an old matured certificate stating on the back side of the certificate surrendered “Received payment through issue of fresh certificate, vide application attached”

The Postmaster shall issue the new NSC Certificate on the spot (if possible) or shall otherwise issue a provisional receipt to the purchaser which can later be exchanged with the National Savings Certificate (NSC) at the time of issue.

A National Savings Certificate can be transferred from one Post Office to another on making an application in the prescribed form at either of the two post offices.

Nomination Facility

The purchaser of the National Savings Certificate (NSC) may nominate any person as a nominee at the time of purchasing the National Savings Certificate in Form 1 or before the maturity of the NSC in Form 2. The person so nominated shall be entitled to claim the maturity proceeds in case of death of the Original Holder.

In the event of death of the holder of certificate, the nominee(s) shall be entitled at any time before or after the maturity of the certificate to:-

Encash the Certificate

Sub-divide the NSC Certificate in appropriate denominations in favour of individual nominees.

However, the rights of the nominee would only come in force in the event of death of the original holder of the National Savings Certificate (NSC). The nominees would also be required to make an application to the Postmaster intimating him about the death of the original holder. This application should also be accompanied with the Death Certificate.

Every such application for issue of duplicate certificate shall be accompanied by a statement showing the particulars, such as number, amount and the date of certificate and the circumstance attending such loss, theft, destruction, mutilation or defacement.

If the officer-in-charge of the post office of registration is satisfied of the loss, theft, destruction, mutilation or defacement of the certificate, he shall issue a duplicate certificate on the applicant furnishing an indemnity bond in the prescribed form with one or more approved sureties or with a bank guarantee.

A duplicate certificate shall be treated as equivalent to the original certificate for all the purposes of these rules except that it shall not be encashable at a post office other than the post office at which such certificate is registered without previous verification.

A Fee of Rs. 5 would be charged for the issue of Duplicate Certificate.

Post Maturity Interest on National Savings Certificate

In case a National Savings Certificate has matured but it has not been redeemed, interest shall be given on such certificates for a maximum of 2 years from the date of maturity.

Simple Interest would be given in such cases and the interest rate would not be the National Savings Certificate Interest Rate but Interest Rate would be the rate at which interest is given to Savings Account

Premature encashment of National Savings Certificate

NSC cannot be redeemed before the maturity of the National Savings Certificate except under following circumstances:-

On the Death of the Holder or the Holders in case of Joint Holders

On forfeiture by a pledgee being a Gazetted Government Officer when the pledge is in conformity with these rules.

When ordered by a court of law

If the National Savings Certificate is encashed within 1 year from the date of issue, the encashment shall be done at the face value without any interest. However, if the encashment is done after 1 year interest shall be payable in such cases but the encashment shall be done at a discount.